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Hospital Drug Payments

In a 14-3 vote, members of MedPAC approved proposals
to reduce Medicare payment rates for hospitals receiving drug
discounts under the 340B drug discount program. Program savings
would be redirected into the Medicare-funded uncompensated care
pool through the use of data on the cost report known as Schedule
S-10, which calculates a hospital's uncompensated and indigent care
costs.

MedPAC included the 340B proposal in its
recommendation on updating inpatient and outpatient Medicare
payments. In addition to the 340B language, the proposal calls on
Congress to direct the health and human services secretary to
update fiscal year 2017 inpatient payments and calendar year 2017
outpatient hospital payments by the amount specified in current
law.

The recommendation would reduce Medicare Part B
payments to hospitals participating in the 340B program from the
current rate of average sales price (ASP) to ASP minus 10 percent,
which would effectively reduce hospitals’ 340B savings by roughly
30 percent, according to a Jan. 13 letter to the panel from 340B
Health, a trade group for safety-net hospitals.

Under the 340B program, manufacturers provide
outpatient drugs to eligible health-care organizations, including
hospitals that serve a disproportionate number of low-income
patients, at significantly reduced prices. At the same time,
Medicare pays the same rate for Part B drugs, regardless of whether
the hospital can get these discounts.

The Health Resources and Services Administration
(HRSA), part of the Department of Health and Human Services,
administers the 340B program. A November 2015 report by the HHS
Office of Inspector General said that Medicare payments were 58
percent more than the statutorily based 340B ceiling prices in
2013, which allowed hospitals and other covered entities to retain
approximately $1.3 billion (13 PLIR 1767, 12/18/15).

Savings

The Medicare cut affecting 340B-purchased drugs
would reduce beneficiary cost sharing by $70 million a year,
according to a staff presentation. MedPAC staff added that the
recommendation is budget neutral, and from the hospitals'
perspective, they would see an aggregate payment decrease of $70
million.

In addition, under the proposal, $300 million is
redirected to the uncompensated care pool annually, and through
that mechanism, distributed back to hospitals, staff said. The
recommendation also would redistribute dollars toward hospitals
providing the most uncompensated care, MedPAC staff noted.

Ahead of the vote, the American Hospital Association
(AHA) urged MedPAC to withdraw its 340B recommendation. In a Jan.
11 letter to MedPAC Chairman Francis J. Crosson, the AHA said the
recommendation is outside of MedPAC's scope because the advisory
panel is only “charged with providing Congress with analysis and
policy advice on the Medicare program” and the 340B program is a
public health program that is administered by HRSA (14 PLIR 73,
1/15/16).

Crosson defended MedPAC's decision to offer the 340B
proposal. Noting that Congress asked MedPAC to investigate the 340B
program, Crosson said the payments under the program are Medicare
supplied dollars and within's the panel's jurisdiction to
cover.

However, Commissioner Herb B. Kuhn, the president
and chief executive officer of the Missouri Hospital Association,
disagreed. MedPAC's decision to create the 340B proposal represents
a bit of “mission creep” for the panel, because it's looking at a
program run by HRSA, he said.

Kuhn, along with Warner Thomas, the president and
CEO of the Ochsner Health System in New Orleans, and David Nerenz,
the director of the Center for Health Policy and Health Services
Research at the Henry Ford Health System in Detroit, voted against
passage of the recommendation.

Reaction

The AHA criticized the vote. “Today's MedPAC
recommendation to cut Medicare payments for hospitals in the 340B
Drug Pricing Program is misdirected,” the group said in a Jan. 14
statement, adding the advisory panel is penalizing hospitals and
the patients they serve instead of addressing the real issue, the
skyrocketing cost of pharmaceuticals.

“We are disappointed MedPAC has ventured so far
afield from their mission, especially in the face of such strong
opposition by several Commissioners,” the AHA said. “Making a
recommendation that penalizes hospitals for their participation in
a non-Medicare, public health program that is designed to increase
patient access to care is outside of MedPAC's scope, and is
inappropriate.”

Similarly, America's Essential Hospitals, a trade
group for safety-net hospitals, said in a Jan. 14 statement that
the recommendation “would produce negligible savings for
beneficiaries, while putting vulnerable patients and the hospitals
on which they depend at risk.” In fact, the group said, most of the
$70 million in estimated beneficiary savings would not go directly
to beneficiaries, as 86 percent have supplemental insurance,
according to MedPAC figures.

340B Health in a Jan. 14 press release called the
recommendation concerning. “MedPAC's proposal would fundamentally
change the 340B program, and there has not been enough analysis
about how hospitals would be affected. 340B hospitals provide
significantly more uncompensated care than non-340B hospitals,”
according to the group.

In addition, a major drug industry group viewed
MedPAC's recommendation with caution.

“While it is evident the 340B drug discount program
is growing at unsustainable levels and thoughtful reform is needed,
this proposal is not the right approach,” a spokeswoman for the
Pharmaceutical Research and Manufacturers of America told Bloomberg
BNA in a Jan. 14 e-mail. “PhRMA supports needed reforms to the 340B
drug discount program and is committed to working with grantees,
Congress, the administration and other stakeholders to ensure it
reaches the vulnerable or uninsured patients it was intended to
help.”

To contact the reporter on this story: Michael D.
Williamson in Washington at mwilliamson@bna.com

To contact the editor responsible for this story:
Janey Cohen at jcohen@bna.com

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